Magazine

A Retail Invasion From Turkey

December 14, 2003

If you are mulling over the idea of doing business in Central Asia and Russia, chances are a Turkish company was there before you. In the early years after the breakup of the Soviet Union, Turkish construction companies literally paved the way for other investors in that region, building roads, bridges, and airports. "They had nothing there. Absolutely nothing," recalls Haluk Kaya, chairman of Istanbul-based Ucgen Construction, which has built more than 25 projects in Central Asia, everything from brick factories and dairy plants to the Prime Ministry building in Kazakhstan and the National Museum of Turkmenistan. Turks also renovated the Russian White House, the seat of Parliament, after Boris Yeltsin bombarded it in 1993, and built dozens of hotels in Russia, Azerbaijan, Turkmenistan, Uzbekistan, and Kazakhstan.

After that first rush, Turks, like many other foreign investors, backed off because of chaotic and unpredictable conditions in Russia and its neighbors. But now the Turks are back. This time, though, they're putting their money into consumer goods and services. Turkish grocery chain Migros this year opened nine new megastores, called Ramstores, bringing to 31 the number of their stores in Russia, Kazakhstan, Azerbaijan, and Bulgaria. "We plan to invest $100 million a year in new stores for the next several years," says Omer Bozer, general manager of Migros.

Thanks to executives like Bozer, the amount of money invested by Turkish companies in countries that were formerly part of the Soviet Union has jumped by $1.6 billion since January, 2002, according to Turkey's Foreign Economic Relations Board. Overall, Turks have invested $6.3 billion in the region since 1991, including $1.3 billion in Kazakhstan, $1 billion in Russia, and $1.25 in Turkmenistan, making Turkey one of the top ten foreign investors in the region along with the U.S., Germany, Korea, Canada, and China.

PUTTING DOWN ROOTS

Turkish companies are not only building the stores, they're filling them with Turkish goods. But not all are made back in the home country. A growing proportion of the TVs, DVD players, computer monitors, food products, cosmetics, textiles, and beverages are being produced in brand-new factories built by Turkish companies close to the new retail outlets. Beverage group Anadolu Efes has just completed its third brewery in Russia and its second in Kazakhstan. Vestel, the Turkish electronics manufacturer, built a television plant in Alexandrov, outside Moscow, that has the capacity to make 1 million units a year. Evyap, the soap and detergent company, is about to finish a new factory in Ukraine. And cellular giant Turkcell's 41.5%-owned joint venture with Finland's Telia Sonera, Fintur Holdings, owns majority shares in the cellular networks of Georgia, Moldova, Kazakhstan, and Azerbaijan.

These new markets are attractive to Turkish companies for a number of reasons. They're close by, they offer higher margins than markets in the highly competitive European Union, and they contain a population starved for consumer goods after 70 years of pent-up demand from the Soviet era. "The growing middle class in Russia is a major factor in our decision to expand there," says Cengiz Ultav, a member of Vestel's executive board. Vestel has invested over $30 million in the TV plant in Russia and plans to spend up to $60 million to triple its capacity to 3 million units.

There's one more reason: Turkish companies are trying to become more global in scope. Investing in neighboring countries, particularly those that share a common culture and language is a good place to start. By Louisa Edgerly in Istanbul